Americans are accustomed to an abundant supply of gasoline that is easy
to purchase both in urban and rural areas. To satisfy the public demand for gasoline, the oil industry has
developed a complex network of pipelines, terminals and truck fleets to move gasoline from refineries to service
stations.

The use of cleaner-burning gasoline in California means that California
service stations will be selling gasoline that meets different specifications than gasoline sold in other states.
This is not new, as California refineries for many years have produced gasoline to specifications required
specifically by California.

This backgrounder discusses how the oil industry will supply cleaner-burning
gasoline to consumers during the remainder of the decade.

Background

California is a major producer of gasoline products. A total of 13
refineries currently operate in the state and produce the vast majority of gasoline used in California. They
are located in three regions: the eastern San Francisco Bay Area, the Bakersfield area and southern
Los Angeles County.

In general, the Bay Area refineries supply gasoline for Northern California
while the Bakersfield and LA County refineries supply Southern California. The oil industry typically has
moved gasoline between the two halves of the state, as well as export gasoline from California to other states
and the world market.

Much of the fuel produced at the refineries is transported via pipeline
to bulk terminals in outlying areas. The fuel is then transferred to tank trucks which bring the gasoline
to service stations.

Phase-In Period: March 1 to June 1, 1996

To ensure a smooth transition from current gasoline, the California Air
Resources Board has created a three-month phase-in period for cleaner-burning gasoline.

Refineries must begin producing cleaner-burning gasoline by March 1, 1996.
The fuel must arrive at bulk terminals by April 15 and must be sold at service stations by no later than
June 1. During the three-month phase-in period, service stations can continue to sell their previous inventories
of gasoline.

It is expected that service stations will gradually begin selling cleaner-burning
gasoline throughout the phase-in period. There will be no single date when all of California changes to cleaner-burning
gasoline.

Because some oil companies find it more conducive to their operations to
begin refining and distributing cleaner-burning gasoline earlier than required, it is expected that many service
stations will be selling cleaner-burning gasoline before March 1.

Supply/Demand Projections for 1996-2000

The California Energy Commission has been working with the Air Resources
Board and the oil industry to estimate the statewide supply and demand for cleaner-burning gasoline through the
year 2000. According to the Energy Commission's estimates, the state's refineries should have more-than-adequate
capacity to meet the demand for the gasoline.

The Energy Commission's most-likely estimate is based on the assumption
that gasoline demand will see little growth between 1996 and 2000. Even if demand increases, the state's
refineries have the capacity to produce sufficient quantities of cleaner-burning gasoline.

In an extreme case, gasoline demand could exceed in-state refining capacity
by 2000 if demand increases by 2 percent annually beginning in 1996. This scenario assumes an unlikely
level of economic growth and gasoline use. In such an extreme case, the oil industry would have to meet demand
by importing cleaner-burning gasoline from out-of-state refineries, or increase in-state production of gasoline
by making refinery modifications, or transporting additional new blendstocks to California refineries.

Variances

California's oil refineries have informed the Air Resources Board that they
will begin producing cleaner-burning gasoline by March 1, 1996. However, an unforeseen incident beyond a
refinery's control, such as damage from a fire, could force a refinery to miss the March 1 deadline. A similar
future incident could create the potential for a fuel shortage.

A refinery facing production problems due to circumstances beyond its control
could qualify for a variance from the cleaner-burning gasoline regulations. This would allow the refinery
to temporarily produce fuel not meeting the specifications of cleaner-burning gasoline. The Board would have
to make a finding that a variance serves the public interest. Any refinery receiving a variance would have
to pay a mitigation fee for each gallon of fuel produced to ensure that it does not accrue any financial benefit
from selling fuel that is cheaper to produce than cleaner-burning gasoline.